All is Well on the Dow (Apparently)

by JDH on September 17, 2011

All is good, apparently. After bottoming out around 10,835 on Monday afternoon, the Dow rallied to close over 11,500 on the week, up almost 5% on the week. So, all is good. No need to worry about unemployment, or rampant inflation, or anything else. Even the cynics amongst us must be encouraged by the fact that, year to date, the Dow is basically flat, proof again that all is well.

Of course I am a cynic, and I don’t think we are out of the woods yet.

It’s true that the Dow has made it almost all of the way back to the previous highs in mid 2008. The recovery from the lows has been astounding, although not surprising when you consider the massive amount of money thrown at the problem by the government.

There was frost on the ground Friday morning (the first time this season), so instead of going outside for a run I spent half an hour on my Elliptical machine, watching CNBC (also called CNBS). I heard Donald Trump interviewed, and he told the hosts that banks were offering him money at half of one percent on loans. The banks have so much “free” money that they are willing to lend it out to their “A” level borrowers for just half a point over free.

Even The Donald thought that was ridiculous, and he’s advising people to put their money in “hard assets”, which to him means real estate and real companies. He realizes the dollar is headed for further erosion.

My version of hard assets, of course, is gold.

Here’s what I find striking when comparing the chart of the Dow to the chart of gold: The Dow has spent a great deal of time under it’s 200 Day Moving Average; gold hasn’t dropped under it’s 200 DMA since the beginning of 2009.

What does that tell you?

It tells me that the Dow, a very narrow measure of the U.S. market, is very volatile, while gold, a much smaller market in dollar terms, is on a sustained march upwards.

So the plan remains the same. Put in some stink bids because inevitably over the next four to eight weeks the market will have another shock, driving all stocks down, and that will be the perfect buying opportunity.

Precious metals traditionally do well in the first quarter, so being positioned for that appears to be the prudent move.